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Tile Shop Holdings, Inc. v. Allied World National Assurance Co.

United States District Court, D. Minnesota

June 4, 2019

Tile Shop Holdings, Inc., Plaintiff,
v.
Allied World National Assurance Company, Defendant.

          Emily Unger, Esq., Jonathan Baker, Esq., Matthew T. Boos, Esq., and Richard D. Snyder, Esq., Fredrikson & Byron, PA, Minneapolis, MN, on behalf of Plaintiff.

          Anthony J. Alt, Esq., Bradley M. Jones, Esq., and Jeffrey M. Thompson, Esq., Meagher & Geer, PLLP, Minneapolis, MN, on behalf of Defendant.

          MEMORANDUM OPINION AND ORDER

          ANN D. MONTGOMERY U.S. DISTRICT JUDGE

         I. INTRODUCTION

         On March 20, 2019, the undersigned United States District Judge heard oral argument on cross motions for summary judgment of Defendant Allied World National Assurance (“Allied”) [Docket No. 71] and Plaintiff Tile Shop Holdings, Inc. (“Tile Shop” or “TSH”) [Docket No. 120]. For the reasons set forth below, Allied's motion is granted and Tile Shop's motion is denied.

         II. BACKGROUND [1]

         A. The Insurance Policies

         Tile Shop Holdings, Inc. was incorporated on June 21, 2012. Ex. 39.[2] In preparation for offering public stock and securities for the new entity, Tile Shop purchased primary and excess Directors and Officers (“D&O”) insurance policies. Tile Shop purchased its primary coverage from a member company of American International Group, Inc. (“AIG”) (“Primary Policy”), and an excess policy from Allied (“Excess Policy”). The effective date for both policies is August 20, 2012, for a term of one year. Both policies renewed for a second one-year period beginning August 20, 2013, with the same policy terms.

         Both policies include prior act exclusion clauses. The Primary Policy's exclusion clause is found in Endorsement #10:

In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable to make any payment for Loss in connection with any Claim made against an Insured alleging any Wrongful Act occurring prior to August 20, 2012 . . . . Loss arising out of the same or related Wrongful Act shall be deemed to arise from the first such same or related Wrongful Act.

Ex. 15-48 (emphasis in the original). Tile Shop paid $146, 040 for the Primary Policy with the Prior Acts Exclusion clause. Without the exclusion clause, the price would have been $220, 000. Exs. 28-3; 46-3.

         Allied's Excess Policy follows form, referencing the Primary Policy and that policy's $10 million dollar policy limit. Ex. 14-1. The Excess Policy's exclusion language is found in Clause II, Terms and Conditions, C., “Pending or Prior Exclusion, ” stating “This Policy shall follow any exclusion in the Primary Policy . . . .” Ex. 14-14. But, additional exclusion language is found in Endorsement #2 of the Excess Policy. Allied “amended by adding the following exclusion” terms:

Prior Acts Exclusion This Policy shall not cover any Loss in connection with any claim alleging, arising out of, based upon, or attributable to any wrongful act(s) committed, attempted, or allegedly committed or attempted prior to August 20, 2012 . . . .

Ex. 14-4 (Endorsement #2). Tile Shop paid $90, 500 for the Excess Policy with the Prior Act Exclusions language. Without the exclusion clause, the price would have been $135, 000. Exs. 45-3; 47-2.

         “Wrongful Act” is defined in the Primary Policy as:

(1) any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act...:
(i) with respect to any Executive of an Organization, by such an Executive in his or her capacity as such or any matter claimed against such Executive solely by reason of his or her status as such; . . .
(2) with respect to an Organization, any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act by such Organization, but solely ...

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